AS SOON as the tax seasonhits, there is a flood of ag-gressive advertisements bydifferent categories of tax

saving instruments. Suddenly yourpersonal banker would start callingyou more frequently suggesting youways of “smart” tax saving. The salesteam of various financial institutionsare under pressure to make the mostof the tax planning season.

It is times like these when thereare maximum chances of goingwrong in managing your financesand end up investing in a productthat would prove to be quite painfulin the long run. The misselling by theagents to garner higher commissionscannot be ruled out too. It is not diffi-cult to protect oneself from theirhard selling techniques. A little at-tention to the actual investment re-quirement for tax planning wouldhelp avoid making mistakes and go-ing overboard. Here are some tips.

ASSESS TAX LIABILITYForm 16 is the most important docu-ment to understand the tax liabilityfor the current financial year andhow much tax you would be able tosave. Take out all the receipts/copiesand other related documents of in-surance premiums paid, tuition feepaid for the children’s school, healthinsurance premium paid for self,spouse, children or parents, housingloan-both principal and interestcomponent, contribution to PublicProvident Fund (PPF), investmentsinto equity linked saving schemes(ELSS) by mutual fund companies,rent receipts, employee providentfund, and five year fixed deposits.

Once you have all thedocuments in hand, writedown contributions made un-der each head and do your calcu-lations. Section 80C allows deduc-tions up to Rs one lakh oncontributions made under PPF, lifeinsurance premiums, principal onhousing loan, tuition fees, ELSS,EPF, and five year FDs. It is impor-tant to have all documents and re-ceipts in place as a copy of the origi-nal needs to be deposited with theemployer to avail tax deduction.

In case of any confusion onemust seek clarification with the re-spective accounts department sothat exact tax liability is clear. Oneneeds to plan only for the amountleft after deducting the aboveamount from Rs one lakh, undersection 80C.

DTC IMPACTIf Direct Tax Code is implementedfrom next financial year, in the pro-posed format, there would not be anytax benefits on fixed deposits, insur-ance plans with return componentlike ULIPs, and equity linked savingsschemes. While investing in an in-vestment product of an insurancecompany it would be prudent to keep

the possible changes inthe tax regulations as thelock-in period is five years now.

However, some of the top ELSSfunds have given high returns in thepast and this may be the last opportu-nity to invest in them. “Only threeyear lock-in period makes them anattractive investment option. Thosewho still have some window to investunder 80C must tap this opportu-nity”, suggests Suresh Sadagopan, aMumbai based financial planner.

OTHER OPTIONSApart from Section 80C, health in-surance premiums are available fortax deductions under Section 80D.R 15,000 for self, spouse and childrenand additional R 15,000 is availablefor parents. If you are paying a hous-ing loan, tax deductions up to R1,50,000 is available on interest paidon housing loan under Section24. Remember to keep all your rentreceipts as the rental for selfaccommodation is available for taxdeduction under House Rent

Allowance (HRA).Donations made to some speci-

fied institutions are eligible for taxdeductions under Section 80G. Doremember to keep the proper re-ceipt to avail tax benefit. UnderSection 80E, interest paid on loantaken for higher education for self,spouse or children is available fortax deduction.

Additional tax deduction up toR 20,000 can be availed on invest-ment into infrastructure bonds un-der Section 80CCF. The benefit ismaximum for those in the highesttax bracket.

NEW PRODUCTSJanuary, February and March(known as J-F-M period in the in-surance and mutual fund parlance)see several launches of tax savingproducts. There is no doubt thatthese products would provide bene-fits of tax deduction but the costone pays for such a benefit needs tobe assessed.

For example, an insurance com-pany recently launched a tax saving

product that claims to provide R 5lakh cover plus guaranteed re-

turn of R 1.9 lakh (almost dou-ble) over a period of 10 years

with a one-time contributionof R one lakh. While it may

look to be an attractiveoption at the outset, the

annualised returncomes down to mere

7.2 per cent. Prod-ucts like PPF, FDs

and debt fundscould give a bet-

ter return. Asfar as life in-

surancecompo-

nent is con-cerned, an ade-

quate term insuranceshould be enough.

Even new fund offers of ELSSmay be avoided. There already existELSS funds that have a good trackrecord which can be chosen overnew launches.

TAX PLANNING“Most of the people do not under-stand the exact tax liability and endup buying expensive products. If youcannot do it yourself, it is better totake help of a professional ratherthan get trapped in a bad product”,suggests Kartik Jhaveri, Director,Transcend Consulting.

Planning one’s tax may seem tobe a tedious job but a little attentionand some time devotion would helpalign it with overall financial plan-ning. For example, a term insuranceis part of buying life cover as well astax savings; ELSS provides tax bene-fit along with exposure to equity;health insurance provides healthcover as well as saves some tax etc.So become tax smart this year anddo not get fooled by high pitch ad-vertisements. ◆

ritukant.ojha@expressindia.com

GLOBALmarketshave expe-riencedheightenedvolatility inthe last fewmonths.The widen-

ing contagion in the Euro-zone and fiscal uncertaintyin the US has weighed onequity markets. Indian mar-kets too have seen rapidmovements on either side ashigh inflation; peaking in-terest rates and high twindeficit take their toll. In factthe BSE- Sensex lost over2,000 points in less than amonth, taking it to a newtwo-year low before turningaround and climbing by al-most 500 points in just3 days.

The most obvious reac-tion from an investor in sucha scenario would be to sellthe investment and avoidre-entering the market tillsigns of stability become vis-ible. This behaviour eventu-ally leads to missing out onopportunities to investwhen the sharp declinemakes quality stocks avail-able at attractive prices.However as the adage goes,everything is clear in hind-sight and seldom has any-

one been able to pinpointthe bottom in market levels.

WHAT IS MARKETVOLATILITY?Volatility is a phenomenonwherein markets experienceuncertainty resulting inbouts of upwards and down-wards movements in indexlevels. Volatility is often de-scribed as the “rate andmagnitude of changes inprices” and in finance par-lance is often referred toas risk.

CHALLENGINGMARKET CONDITIONSWhile no investment strat-egy guarantees positive re-turns across all timeframes,one can take some simpleyet effective steps to ensure

they are able to navigatethrough market volatility ina planned and process ori-ented manner:STAY INVESTED: Watchingone’s portfolio returns fall isa heart stopping event forany investor. However, oneof the best ways to safe-guard your investmentsfrom being affected by mar-ket volatility would be toavoid taking any action.This means staying investedfor the long-term and notpaying attention to short-term fluctuations.ASSET ALLOCATION CRUCIAL:One should begin by defin-

ing one’s financial goals,risk appetite and time hori-zon; followed by careful as-set allocation plan which be-comes the basic buildingblock to achieve thefinancial goals in the re-quired time frame.DIVERSIFICATION IS KEY:most essential componentof asset allocation is to di-versify one’s portfolio. Di-versification is the processof spreading one’s invest-ments across different assetclasses. This ensures thatone’s portfolio is not ex-posed to the risks of a singleasset class and at the same isable to take advantage ofthe upside witnessed in dif-ferent asset classes at differ-ent points in time.Invest through equity mu-tual funds. Exposure tostock markets through mu-

tual funds is a convenient,affordable and prudent wayfor retail investors, sincemutual funds offer you op-portunity to avail the ser-vices of expert fund man-agers at marginal cost.SIP ROUTE: Volatile mar-kets result in fall in stockprices more due to marketconditions rather than busi-ness fundamentals. Invest-ing through SIPs helps onetake advantage of marketvolatility since one is ableto purchase more units ofthe scheme when marketsfall and less units whenmarkets rise thereby aver-aging the purchase cost.This leaves the investmentwith reasonable scope togenerate sizeable returnswhen a rebound occurs.

Volatility is an inherentcharacteristic of stock mar-kets. Instead of getting per-turbed by the same, investorswould do well to adopt theabove measures and therebycraft their investment port-folio in a manner that it isarmed with all the right in-gredients to take advantageof market volatility andthereby deliver superior re-turns in the long term. ◆

—Author is Chief Invest-ment Officer, Mirae Asset

Global Investments

GOPALAGRAWAL

It should be utilised to your advantage so that your investment portfolio delivers superior returns

■ STRATEGY

Navigating through volatile markets

NAME: MOHAN AND RAJNI RAORESIDES IN: BANGALORE/ PUNE

PROFESSION: MOHAN IS AN IT PROFESSIONAL AND RAJNI WORKS IN THE PHARMA SECTOR

N E T A N N U A L I N C O M E

(R19.44LAKHS)STATUS & GOALS

MOHAN, 43 AND RAJNI, 36 ARE LIVING IN DIFFERENT CITIES DUE TO JOBCOMPULSIONS. AFTER HAVING WORKED FOR ABOUT 12 YEARS, THEY FEEL THEYHAVE NOT CREATED ANY WEALTH FOR THEMSELVES. BEING IN DIFFERENT CITIESLEAVES THEM WITH NO TIME TO SIT DOWN AND PLAN THEIR FINANCES. BESIDES,

MAINTAINING TWO HOUSES IS TAKING A TOLL ON THEIR SAVING CAPACITY

NEEDEDA financial plan thatwill force him tosave and also pro-vide good returnsfor future goals andretirement.

PLAN BY: KIRAN TELANG,CERTIFIED FINANCIAL PLANNER,

MEMBER OF THE FINANCIAL PLANNERS’ GUILD, INDIA(www.fpgindia.org)

For expert guidance on your financial planning email us your details atexpressmoney@expressindia.com

EXPRESS CLINIC

FINDINGSEMERGENCY FUNDSavings bank R 1 lakh. FDs worth R 70,000.HEALTH INSURANCEEmployer provided cover which provides cover-age including that for dependent parents.INSURANCEMohan has a term plan of R 50 lakh.Rajni is covered for a small amount of R 3.5 lakh.INVESTMENTS

Gold worth R 4 lakh in theform of jewellery. Rajni hasa PPF account with a bal-ance of R 2.5 lakh. Theyhave NSC which will be ma-turing in the next three

months with a maturity value of about R 2 lakh.They own a plot of land worth R 26 lakh. Mo-han has some mutual fund investments whichare worth R 1.1 lakh currently.RETIREMENTTheir only plan for retirement is their land. Mo-han has an EPF balance of R 3 lakh and Rajni’sbalance is R 72,000.LIABILITIESThere is a home loan for which they pay an EMIof R 16,000. The loan tenure will get over in2020. The property purchased with this loan istheir primary residence.

RECOMMENDATIONS

EMERGENCY FUNDThe family should have R 2.13 lakh as contin-gency funds. Use funds from the NSC that canbe kept in the form of an FD linked to the sav-ings account.Express Tip: Always keep 3-6 months ofexpenses in ready to use form. Do not forget toinclude EMIs in the expenses.

HEALTH INSURANCEMohan and Rajni should each have a personalhealth insurance cover of R 5 lakh R 3 lakhs foreach child. This should cost about R 15,000 p.a.Express Tip: Personal health insurance willprotect you in scenarios like job loss.

LIFE INSURANCEMohan should take an additional life insurancecover of R 80 lakh and Rajni R 40 lakh. A termplan will suit their requirement best. The totalcost for risk cover for both of them should be inthe range of R 40,000 per annum.

Express Tip: Sometimes seemingly bigterm plan is also not enough when actualneed is estimated.

ACCIDENT INSURANCEBoth Mohan and Rajni should get a personal ac-cident insurance cover of R 10 lakh. This will beuseful in case of disablement due to accident.Payments will be received in monthly instal-ments for about 2 years in case of temporary to-tal disablement in case of accident. This shouldcost approximately R 2,000 annually.ExpressTip:Accidentcanaffect incomes tem-porarilyorpermanently.

CHILDREN’S GOALSAryan’s education will require an outlay ofR16,000 in an SIP. For his marriage, they needto start an SIP of R 3,000 per month. To meetRadhika’s education expenses, start an SIP ofR 12,500 in a diversified equity fund. Similarlyfor her marriage, start an SIP for R 4,000 in acombination of good diversified equity mutualfunds and balanced fundsExpress Tip: Start investing early.RETIREMENT

The sources for retirementfunds will be PPF, EPF, prop-erty and MFs. Rajni’s PPF bal-ance can grow to R 19.88lakh in 17 years, assumingaverage 8 per cent return and

annual investment of R 1 lakh. Combined EPF cor-pus should be R 2.41 cr (increase of salary at 7per cent and average EPF rate 8.5 per cent). Prop-erty should fetch them about R 1 cr in 17 years.Existing mutual fund SIP of R 18,000 and balanceof R 1.1 lakh should add R 1.26 cr at 12 per cent.An SIP of R 6,400 can meet the goal. The shortfallof R 4,000 pm can be met by investing theirbonuses and salary increases into MFs.ExpressTip:All sources should be consid-ered to arrive at the retirement corpus.

OTHER INVESTMENTSMaturity of NSC should be utilised for emer-gency funds, term insurance policy, health andaccident insurance covers. The balance left afterthis should be invested in a good debt orientedhybrid fund to serve as additional corpus forlifestyle goals.

CONCLUSION

Financial planning is an ongoingprocess and based on manyassumptions. Situations change andthe changes may not be asanticipated. Do a regular review tocheck whether you are on track tomeet your goals.

GOALSIN ORDER OF PRIORITY

ARYAN’S EDUCATION(2022) (inflation considered-10%)

CURRENT VALUER 15lakh

FUTURE VALUER 42.79 lakh

RADHIKA’S EDUCATION(2026) (inflation considered-10%)

CURRENT VALUER 15lakh

FUTURE VALUER 62.65lakh

ARYAN’S MARRIAGE(2035) (inflation considered-8%)

CURRENT VALUER 8 lakh

FUTURE VALUER 50.72 lakh

RADHIKA’S MARRIAGE(2034) (inflation considered-8%)

CURRENT VALUER 10 lakh

FUTURE VALUER 58.71lakh

RETIREMENTPLANNING (2028)

(Inflation considered -7%,Life expectancy -85 years)

CURRENT MONTHLYEXPENSES

R 55,000

FUTUREVALUE

R 2,03,500

CORPUSREQUIRED

R5.47crore

MONTHLY INCOME (Post Tax)

R1,62,000TOTAL EXPENSES

R 1,16,400

R45,600NETMONTHLYSURPLUS

During J-F-Msales pitch of tax savingproducts is highest. A littletax planning may save onefrom getting into the trap ofa bad product.

THINKSTOCK

■ TAX

TheIndianEXPRESSwww.expressmoney.in

16MONDAY I JANUARY 9 I 2012

yMoneyEXPRESS

If the exact tax liability andrelated provisions are notclear, one may end upbuying a product whichmay become burden onthe portfolio in the longterm, says Ritu Kant Ojha

Fromtaxpayerto taxsaver

THINKSTOCK/AKBEE